Calculate EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) from your income statement figures.
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EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization. Adding these non-operating and non-cash items back to net income gives a picture of a company's core operating profitability, independent of financing structure, tax jurisdiction, and capital investment decisions.
For example, 50,000 in net income plus 5,000 interest, 10,000 taxes, 8,000 depreciation, and 2,000 amortization gives an EBITDA of 75,000.
EBITDA is commonly used to compare profitability across companies with different debt levels, tax situations, or asset bases, and is a common input into valuation multiples (like the earnings-multiple method used for small business valuation).
Treating EBITDA as equivalent to free cash flow, EBITDA ignores capital expenditures and changes in working capital, both of which can consume significant real cash.
Using EBITDA alone to compare companies without also checking debt levels, EBITDA excludes interest expense, so a heavily leveraged company can look deceptively similar to an unleveraged one on this metric alone.
Applying an industry-average valuation multiple to EBITDA without adjusting for company-specific risk factors, growth rate, or customer concentration.
No. EBITDA excludes some real cash costs, like changes in working capital and capital expenditures, so it's a proxy for operating profitability, not a direct measure of cash generated.
Revenue is optional and only used to calculate EBITDA margin (EBITDA as a percentage of revenue). Leave it blank if you only need the EBITDA figure itself.
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